Venezuela Exported Another 12t Of its Official Gold Reserves To Switzerland In February

According to data released by the Swiss customs department on Tuesday, Venezuela has net exported 12 tonnes of gold to Switzerland in February 2016. In January Venezuela net exported 36 tonnes of gold to Switzerland, in total 48 tonnes was moved in the first two months of this year.

Venezuela’s economy is in a tight spot. The country suffers from triple-digit inflation and Credit Default Swap (CDS) data shows that traders see a 78 % chance on default. The foreign exchange reserves of Venezuela declined by 12 % to $13.6 billion US dollars in February, from $15.5 billion US dollars in January of 2016. In an effort to avoid catastrophes Venezuela’s central bank has a strong motive to employ its official gold reserves.

The gold imported by Switzerland must have been supplied from the official gold reserves of Venezuela’s central bank – Banco Central de Venezuela (BCV) – either as sales or swaps. Documents by the US Geological Survey show Venezuela’s annual gold production stands at approximately 12 tonnes, which is insufficient to be responsible for the large shipments in recent months.

The Swiss customs department publishes trade statistics by weight and value. When using the average monthly gold price to compute the estimated fine gold content from the weight and value disclosed, it shows the gold exported by Venezuela since December 2013 was roughly “99.5 % pure” (see the grey dots in the chart below). In the wholesale gold market bars have a minimum fineness of 995 per 1,000 parts. Data from Switzerland’s trade statistics implies the metal imported from Venezuela is wholesale bullion from the BCV, not mine output that has a lower fineness.

Chart 1. The gold imported by Switzerland from Venezuela prior to December 2013 was likely mine output (roughly 80 – 85 % pure), imports after December 2013 from Venezuela must have been supplied by the BCV’s official gold reserves, as the batches were roughly 99.5 % pure. Any estimated purity above 100 %, in reality would be more like 99.5 %.

According to Eurostat no EU member has imported any gold from Venezuela in the past years – Eurostat’s data is updated until December 2015. International Merchandise Trade Statistics provider COMTRADE reports Venezuela hasn’t exported any significant tonnages of gold to countries outside of Europe in recent years either – COMTRADE data is updated until November 2015. However, trade statisticsdo not grant how much gold is, or is not, crossing borders around the globe. Gold can cross international borders without appearing in trade statistics. As an example, we know the BCV shipped an unspecified quantity of gold out of Caracas to an international destination on 2, 3 and 7 July 2015, while these shipments cannot be traced in any trade statistics at my disposal.

How much unencumbered gold the BCV has left is unknown. For sure Venezuela’s official gold reserves are not as much as the World Gold Council portraits. According to the Council the BCV still holds 361 tonnes as of Q4 2015, though the balance sheet at the BCV website from November 2015 states “Oro [gold] monetario 69,147,656,000”, which is worth $11 billion US dollars at an official exchange rate of 0.16. This equates to roughly 296 tonnes of gold, at a nine months rolling average gold price of $1,152.68 an ounce (which is how BCV gold is valued, pointed out by Ronan Manly). According to the BCV website, Venezuela’s official gold reserves declined by roughly 60 tonnes from February until June 2015 (from 361 tonnes to 301 tonnes).

The 296 tonnes of monetary gold, as per November 2015, are not fully unencumbered, as the central bank has entered into swaps (of at least 50 tonnes) with bullion banks that provided the metal to remain on the BCV’s balance sheets.

According to my estimates the upper bound of the BCV’s unencumbered gold reserves, as of 9 March 2016, is 152 tonnes, the lower bound is 0 (zero). The upper bound estimate is based on the official gold holdings of Venezuela in February 2012 at 366 tonnes, assuming all was unencumbered at the time, after which I have subtracted:

Venezuelan (995 fine) gold exports to Switzerland in 2013 at 8 tonnes. This gold could have been involved in a swap, leaving the metal on the BCV balance sheet, while it should be subtracted from Venezuela’s unencumbered reserves.

Venezuelan gold exports to Switzerland in 2014 at 12 tonnes. Again, this could have been gold involved in a swap, leaving the metal on the BCV balance sheet, while it should be subtracted from unencumbered reserves.

The 50 tonne gold swap between the BCV and Citibank executed in April 2015 for a tenor of 4 years. Presumably this swap included the 50 tonnes the BCV had already stored at the Bank Of England. The gold in question remained on the BCV balance sheet according to the website the Venezuela Analysis.

A 60 tonne decline shown on the balance sheet of the BCV from February 2015 until June 2015.

Venezuelan gold exports to Switzerland in September, October, November and December 2015 at 24 tonnes in total. This could have been gold involved in a swap, leaving the metal on the BCV balance sheet, same as in 2013 and 2014.

Venezuelan gold exports to Switzerland in January, February and March 2016 of 60 tonnes in total.

The gold swaps between BCV and the Bank for International Settlements carried out “in recent years”, as reported byReuters in February 2016 (these deals can be related, for example, to the exports to Switzerland performed in 2013 and 2014)

The gold swap with Deutsche Bank in early 2016, as reported by Reuters in February 2016 (this deal can match the exported metal in January or February 2016).

In theory the lower bound of the BCV unencumbered gold reserves is zero, as the three points above can have caused an additional decline in unencumbered reserves of 152 tonnes, or the central bank has sold or swapped significant tonnages we don’t know about.

Annualised, the net flow from Thailand, Turkey and UAE to Switzerland was 948 tonnes! (Please check my numbers Koos as I haven’t had my morning coffee).

It will be interesting to see if net exports from Hong Kong accelerated in February, consistent with this new revelation (data released in two weeks time).

I am sure Eastern demand will increase again after gold prices have consolidated a while, as that is what the historical data tells us following a strong rise. But it does reveal a new dynamic with the return of the Western investor AND Chinese demand for the first time.

(Most likely the UK, America and Switzerland all hoarded gold in February with Switzerland’s net imports in February the largest in years).

JanNieuwenhuijs

Thanks, also noteworthy, India import collapsed in Feb

rowingboat

Not really year-on-year, at least via Switzerland.
Net Indian imports from Switzerland were 27 tonnes in Feb 2015 versus 18 tonnes in Feb 2016, which is not really a major drop. What’s far more significant is the reverse flow from Thailand, Turkey and UAE to Switzerland given the higher gold price.
Now that we are witnessing a meaningful correction tonight in the gold price as I type, count on Eastern demand increasing accordingly come the March trade data when they become available next month.

2) a sharp decline of exports to the East, 72% year-on-year (we already knew about the strike in India but falls were widespread – China, H.K, India, Malaysia, Saudi Arabia, Singapore, Thailand and U.A.E.); and

3) net flow from the East to Switzerland of 22mt compared with a net flow from Switzerland to the East in March 2015 of 184mt (mainly due to U.A.E, Thailand and H.K. reversals).

This slowing and reversal of Eastern flow was to be entirely expected, in my
opinion, given gold’s strongest quarterly performance in 30 years, as U.K, Swiss
and American flows turned positive. E.g. I’ve gone back to examine the 2009/2010
dynamic when the gold price increased by 75% ($US800-1400/oz) over two years:

In 2009 Western demand drove price higher by 50% with strong net flows into the
UK (1100mt) and Switzerland (640mt). With the rising price, Swiss exports to India fell significantly to 309mt and supply from the East to Switzerland increased (Japan, H.K, Turkey, U.A.E, and Thailand) as Swiss supply from USA approximately halved in 2009 (the U.S. hoarded 72mt after dishoarding 207mt in 2008).

The gold price consolidated for 8 months then another 20% advance in 2010 as
Eastern demand returned (particularly India whose imports from Switzerland surged
to 635mt) and net imports to the West eased but were still positive in 2010 (Switzerland, 157mt; UK, 511mt and U.S, 131mt).

One final comment Koos, assuming economic factors driving Western demand remain, and indeed continue to improve (link below) future consolidation periods may reduce in time and price advances increase in magnitude. Due of course to China which wasn’t part of the ebb and flow pre-2011.http://www.acting-man.com/?p=44206

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